How to Charge a Fee (Without Starting a Customer Rebellion)

Consumers are up in arms. From airlines to banks to telecoms, companies are gouging us in our moment of need, piling shady fees on top of mediocre service as people struggle with the ongoing effects of the Great Recession. Getting trapped in a phone tree (“for what you don’t want, press six”) felt bad enough, and now we have to pay extra for the indignity.

In a climate like this does anyone dare charge a fee?

Delivering service costs money, of course, and delivering good service costs even more. It’s not just that some companies have the right “attitude” about customers. Some companies invest in the hard tradeoffs that make good service possible: more and better people, intuitive IT systems, convenient retail spaces.

But it’s not always easy to get paid for extra service features. Consumers are more comfortable paying for the components of a premium product — more computer memory, four-wheel drive — whose incremental value we can touch and feel and take home with us. In contrast, the cost drivers of service are often harder to see, if not invisible. We just know that a business isn’t answering the phone. We don’t think about what’s needed to provide that service properly: a 24-hour call center with enough skilled and available problem solvers to politely absorb random spikes in demand.

Consider the Frappuccino, whose high price tag is funding the track lighting and upholstered furniture in your favorite Starbucks. A big part of the service experience is the chance to linger in a beautiful space, a more tasteful version of our own living rooms, with clusters of attractive people thrown in. But there aren’t meters next to those couches; easier to charge more for the plastic cup on the counter.

So companies must work within the bounds of consumer intuition when trying to cover the cost of service. Central to this challenge is the idea of palatability.

Palatable fees are usually simple, transparent and fair. They feel reasonable to people — an honest price for an honest service — and they don’t violate the often unspoken contract between buyer and seller. As Verizon discovered , “convenience charges” attached to bill payment are particularly unpalatable, since they punish customers for trying to hold up their end of the deal.

The challenging part is that this unspoken contract between company and customer is highly variable. There are few universal rules on pricing and fees. The notion of fair can be highly subjective, and there aren’t stable industry standards. Your landlord can charge you to sleep in a room she owns, but it just feels wrong when your mother does it.

This is why the discount carrier Spirit Air can stop its seats from reclining and charge high fees for almost everything but the ticket, but Southwest Airlines can’t. Unlike Southwest, with its LUV stock symbol and playful pilots, Spirit isn’t trying to be our friend. Spirit is selling us a stripped down, no frills service, and starting with the assumption that we’re adults. The deal is clear: in exchange for a very low price, you’ll have to put up with some discomfort. If you want to be coddled, fly with someone else.

Finally, economic context matters. Pricing is a moving target partly because it doesn’t happen in a vacuum. Consumers are hurting, and the suspicion that the system might be rigged against us is growing. Companies who want to survive the volatility must tread carefully to maintain customer trust. Very little undermines that trust faster than seemingly arbitrary changes to our original contracts, particularly when those changes cost us money.

In short, fees can work, but they must be designed thoughtfully, with an appreciation for nuance and the humanity of customers. When it comes to pricing, businesses should just level with people. We can handle it. If companies treat us like toddlers — if they hide hard truths or tell us “Corporate America knows best” — we will continue to have tantrums.

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